What to Do about China Now

What to Do about China Now

Article excerpt

`EARLY in the next century the United States will cease to be the world's largest economy, and for the first time in more than 100 years will be overtaken by China as the world's most powerful nation.' Thus I predicted in a speech to a group of 60 American pension-fund managers in Hong Kong in 1991. Hardly the world's most incendiary group, many were stirred to fury by my suggestion.

It seemed curious to me that a group of people in the business of `old age' and actuarial analysis should be so reluctant to admit to a future event whose statistical probability was so evident. In the past I would do my calculations on the back of an envelope; now, in the era of Bill Gates and his ubiquitous Microsoft 'Windows' software applications, my laptop PC can spew out reams of predictions at the click of a button. Assuming a starting population of 1.15 billion people and modest economic growth rates allowing for decay of the double-digit figures of the last decade, then the population of China will reach 1.75 billion, and its gross domestic product (GDP) will overhaul that of the United States in the year 2023.

There will be carpers at my forecast. The `it could never happen' brigade generally falls into two camps: the statistics and assumptions quibblers and the neo-Malthusians. Indeed, there are too many variables to make it likely that any personal computer prediction on the crossover date will be accurate. However, the broad trend of the statistics is clear. The combination of demographics and growth from a low level of GDP per capita makes it inevitable that the total size of the Chinese economy will overtake that of the United States, even if American citizens remain individually richer than their Asian counterparts. As for the neo-Malthusians, they find it inconceivable that China alone could add more than one billion people to its existing population by the end of the next century, believing that a new disease will emerge to wipe out the excess populations of Third World countries. The doomsters may be right, but `end of the world' scenarios usually command long odds.

Such scepticism is not new. In the 1950s, Norman Macrae, writing for the Economist, faced derision when he forecast that the Japanese economy (then half the size of the United Kingdom's) would overtake Britain. Japan is now four times bigger! Indeed, it may well be that my forecast for China underestimates the speed at which America will be overtaken. After all, on the World Bank's estimate of aggregate GDP using a purchasing power parity calculation, China is already the world's third largest economy. Taking a simple economic aggregate approach to the growth of China's power is to underestimate the scope of the Chinese world. Singapore is a great offshore Chinese banking centre, while Taiwan, the Kuomintang hideaway, is a rapidly growing US $300 billion economy which China is now looking to embrace. As for Myanmar and North Korea, these are already China's client states. Leaving aside newly acquired Hong Kong, a minority Chinese diaspora controls the economies of Thailand, Malaysia and Indonesia. The world's most rapidly growing region is already in thrall to the Chinese.

Moreover, unlike America, China's political system is clearly geared to militaristic pursuits. China's recently deceased paramount leader, Deng Xiaoping, held just one official post, vice-chairman of the Military Commission. Deng's interest in the army was more than symbolic. A veteran of the long march, he was one of Mao's most accomplished military leaders. Mao once remarked pointedly to Khrushchev that the little man (Deng) had defeated a million of Chiang Kai-shek's finest soldiers. One of Deng's first acts, after ousting Mao's successor, Hua Guofeng, was to restore ranks to a Chinese army ravaged by the cultural revolution. By 1980 China was also equipped with ICBMs with a 7,000-mile delivery which brought America into range. With 107 submarines, China now has the world's third largest fleet. …